SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 or 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 1998
Commission File number: 0-18296
ENVIRONMENTAL MONITORING & TESTING CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 62-1265486
(State of Incorporation) (I.R.S. Employer Identification No.)
825 Main Street South, New Ellenton SC 29809
(Address of principal executive offices)
Registrant's telephone number, including area code: (803) 652-2718
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
Indicated by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained,
to the best of the Company's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ( X )
Registrant's revenues for the year ended September 30, 1998 its most recent
fiscal year were $970,761.
The aggregate market value of the registrant's common stock held by non-
affiliates as of November 30, 1998 was approximately $158,772. The number
of shares of the registrant's common stock outstanding as of November 30,
1998 was 3,823,383.
Documents Incorporated by Reference: Definitive Proxy Statement for 1998
Annual Meeting of Shareholders Incorporated into Part II and Part III of
Form 10-KSB and See Exhibit Index.
Page 1 of 26 Pages
Exhibit Index at Page 25
TABLE OF CONTENTS
PART I
Page
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .7
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . .8
PART II
Item 5. Market for Common Equity & Related Stockholder Matters. . . . . . .8
Item 6. Management's Discussion & Analysis or Plan of Operation . . . . . .9
Item 7. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 12
Item 8. Changes in & Disagreements with Accountants on Accounting
& Financial Disclosure . . . . . . . . . . . . . . . . . . . . . 24
PART III
Item 9. Directors & Executives Officers, Promoters and Control Persons;
Compliance With Section 16(a)of the Exchange Act. . . . . . . . . 24
Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 24
Item 11. Security Ownership of Certain Beneficial Owners and Management. . 24
Item 12. Certain Relationships & Related Transactions. . . . . . . . . . . 24
PART IV
Item 13. Exhibits and Reports on Form 8-K . . . . . .. . . . . . . . . . . 25
PART I
Item 1. Business
Introduction
Environmental Monitoring & Testing Corporation (the "Company") is a
diversified drilling company specializing in environmental drilling,
industrial water wells, recovery wells as related to environmental
requirements, construction drilling and core drilling.
The Company is classified as a special trade contractor within the
construction industry. However, the Company is most often a subcontractor
rather than a prime or general contractor.
The Company presently operates one division located in New Ellenton, South
Carolina. See Item 2. "Properties".
The Company maintains its corporate offices at 825 Main Street South, New
Ellenton, SC 29809 and its telephone number is (803)652-2718.
Environmental Drilling
Environmental drilling involves drilling for soil and water samples, drilling
and installation of ground water monitoring wells, drilling and installation of
recovery wells, primarily hydrocarbon wells, and drilling and installation of
water supply or production wells. The Company uses drilling rigs which are
drilling platforms attached to a truck, all terrain vehicle or other stable
platform to perform these services. See Item 2. "Properties".
The majority of the drilling services provided by the Company are to
facilitate the testing of ground water and related soil conditions. A
contract generally involves drilling a predetermined number of wells at
various points around a job site as identified by the customer. A job site
is usually under the control of a hydrologic or geologic engineering
department of the customer requiring such work. Wells drilled for the
purpose of testing ground water are typically relatively shallow, averaging
approximately 50 to 200 feet in depth. The time spent at a job site is more
a reflection of the decontamination procedures and sampling requirements,
rather than the depth of the wells. Since most jobs must be completed within
a specific time period, the Company must provide as many drilling rigs as
necessary to drill the required number of wells within that time. Also,
conditions may require having two types of drilling rigs on a project: an
auger drilling rig to drill through the softer overburden and a rotary or
hammer drilling rig for rock. As a result, the Company is limited in the
number of jobs which it can perform simultaneously. The Company believes
however, that it possesses an advantage over the smaller competitors because
of the number of rigs it owns.
The Company does not store or haul hazardous wastes. If containment,
collection and removal of development water, drilling mud, drill cuttings and
other hazardous waste is required, the Company places that waste in drums
which Company employees move to on-site storage areas. Thereafter, the
supervising engineer of the customer or other responsible party arranges for
hauling and disposal by an appropriate waste disposal and transportation firm.
Seasonal Effect
Although the Company's operations are not seasonal, the Company does
experience some loss of operational time due to occasional inclement weather
and less favorable ground conditions.
Working Capital
Since the Company is generally a subcontractor, it is usually not paid upon
completion of its work, but only after the prime or general contractor is
paid. This means that the Company must maintain adequate cash to support its
operations for a period of approximately two to three months. See Item 6.
"Management's Discussion and Analysis".
Customers
Westinghouse Savannah River Company (WSRC) is a significant customer of the
Company. The Savannah River Site (Site) is a Department of Energy material
processing facility and because of the nature of its operations, it requires
constant environmental assessment of ground water contamination. One of the
methods of performing this assessment is through the installation of
environmental monitoring wells. The WSRC Site is located approximately one
mile from the Company's home office in New Ellenton, South Carolina.
The Company derived approximately 82 percent and 85 percent of its revenue in
the fiscal years ended September 30, 1998 and 1997, respectively, from WSRC
pursuant to its contracts for drilling services at the Site. On August 27,
l998 the Company entered into a new contract with WSRC, which allocates $1.1
million to be used for environmental drilling on the Site. The period of
performance is October 1, 1998 to October 1, 2000. The unit price paid for
labor under this contract is fixed and the unit price for materials can be
renegotiated by the Company, at the end of one year. This contract with WSRC
gives the Company the right to perform environmental drilling at the Site on
an as needed basis; however the dollar amount of this contract is not binding
or enforceable by the Company but is a framework for releases of job orders.
There can be no assurances that the work to be performed by the Company will
be equal to the $1.1 million contract.
The minority of the Company's revenues are generated from other engineering
and/or consulting firms responsible for evaluating the environmental concerns
of their clients. The Company is engaged by such engineering or consulting
firms because of their familiarity with the Company and its reputation and
prior performance record. Services are generally performed through contracts
obtained through competitive bidding. The Company is aggressively pursuing
contracts other than those with WSRC.
The Company has reduced its scope of operations but is striving to diversify
and market to customers other than WSRC. The Company is licensed to perform
drilling services in three states. The Company would like to perform drilling
services in other states as opportunities arise and on a very selective basis,
though there can be no assurances that such diversification and expansion will
be achieved.
Backlog
As of November 30, 1998 the backlog of signed and verbal contracts totaled
approximately $100,000, of which 100% is attributable to the Site. Generally
the backlog of signed and verbal contracts are not canceled, though there can
be no assurances that such cancellations will not occur. This work is in
progress or scheduled to be substantially completed by the end of December
1998. Since most of the Company's work (except for the WSRC contract) is of
short to medium duration and awarded with little advance notice, the backlog
of signed contracts at any given time is generally not representative of how
well the Company is doing or will do over any particular time period.
Competition
The Company provides its services pursuant to contracts which are generally
obtained through competitive bidding. As noted above, with the exception of
the Company's contract with WSRC for the Site, such contracts are usually
small, the majority of which have a term of less than 30 days and are limited
to the drilling and installation of specific wells. Typically, there are several
bidders for such contracts and, as a result, varying levels of price
sensitivity. The Company's competitors in the bidding process generally have
been small local drilling companies with less drilling equipment and more
limited resources than the Company. Although the Company competes, to some
extent, with larger companies which have greater financial resources, the
Company believes that it owns comparable drilling machinery and related
equipment. Management expects to remain competitive because of its drilling
experience, performance record, continued safety training and equipment
availability and reliability.
Governmental Regulation
Drilling is a licensed occupation. All of the states in which the Company
operates require that the Company and/or its drilling supervisors obtain
licenses to drill and install wells. Such licenses are generally subject to
annual renewal. Neither the Company nor any of its drilling supervisors have
been unable to obtain renewal of their licenses. Although no assurances can be
given, the Company believes that it is in compliance with all current
licensing requirements for the states where it conducts business. The
expansion of division offices and/or operations into additional states may
require further licensing.
At present, the Company's business is not directly regulated, except for the
drilling licenses discussed above, however since the Company performs work on
governmental projects it falls under the regulation of the United States
Department of Energy, the Environmental Protection Agency and various state
environmental agencies. Any violations of such regulations could prevent the
Company from working on governmental projects.
Since the majority of its work relates to drilling and installing wells for
environmental monitoring and testing, the Company benefits from environmental,
health, safety and hazardous waste regulations. Governmental regulation at
both the Federal and State levels has increased and is becoming more
restrictive. It is not possible to predict whether the Company's activities
will become directly regulated as a result of the increase in governmental
regulation.
Management believes that the increased governmental regulation of industrial
wastes and pollution will create a greater demand for services offered by the
Company, though no assurances can be had that the Company will benefit from this
demand.
Employees
As of November 1, 1998 the Company employed a total of 11 employees. See Item
1. "Business-Introduction".
Bonding
Bonding is required on occasion and the Company has been able to obtain bonding
on a per job basis. The bonding company has not established a bonding limit on
a per job basis or in the aggregate, and increased bonding limits, subject to
the financial strength of the Company, can generally be obtained by rendering a
letter of credit or a cash deposit equal to five per cent of the face value of
the bonding amount. The Company anticipates a continuing improvement in bonding
capacity in accordance with a continuing improvement in the financial strength
of the Company; however, no assurances can be given of any long term surety
commitment.
Insurance
The Company carries a $1 Million general liability insurance policy which has
minimal coverage for environmental damage caused by negligence. In addition,
the Company has a $2 Million "umbrella" policy for a total of $3 Million of
general liability insurance. The liability insurance maintained by the Company
covers bodily injury and property damage. These policies are subject to
dollar limitations and other numerous exceptions and conditions. The Company
has workers' compensation insurance which covers employees exposed to
contaminant and toxic waste. The Company does not purchase additional insurance
for pollution liability or environmental impairment since virtually all of the
Company's drilling is performed on a subcontractor basis at the direction of or
under the supervision of various engineers or environmental consultants retained
by the customer, therefore the exposure for this type of claim appears remote.
Although the Company believes that its insurance coverage is adequate, there
can be no assurance that such insurance coverage will be sufficient for all or
any particular claim for which the Company may be found liable. Moreover, there
can be no assurance that the insurance currently maintained by the Company will
be available in the future or that the cost of such insurance will not be
prohibitive. A partially or completely uninsured claim of sufficient
magnitude could have a material adverse effect on the business and financial
condition the Company.
Year 2000
The Company has reviewed its existing computer system and its associated
software to ensure that these systems are able to address the issues expected to
arise in the year 2000 and thereafter. It is the opinion of management that the
Company will not suffer any adverse affects relating to the Y2K issue or incur
any significant expense related to the replacement of hardware or software.
The Company has not fully determined the extent to which the Company's systems
may be impacted by third parties' systems, which may not be Y2K compliant. While
the Company has begun efforts to seek reassurance from its suppliers, there can
be no assurance that the systems of other companies, which the Company deals
with, will be Y2K compliant. Third parties' non-compliance could have an
adverse effect on the Company. At this time the Company is unable to estimate
the cost of Y2K non-compliance by third parties.
Item 2. Properties
The Company presently operates business from one location: its headquarters and
division office in South Carolina.
The Company headquarters and division office is located in New Ellenton, South
Carolina. The Company owns the facility, consisting of four buildings on 4.83
acres fronting on South Carolina Highway 19. The four steel frame and metal
buildings consist of: a 3,600 square foot office building; 3,200 square feet
of maintenance shops; 4,800 square feet of warehouse; and approximately 4,200
square feet of other shops and storage. The balance of the property is used to
park vehicles and equipment when not being used on a job site and while awaiting
repair.
In November, 1996 the Company's management identified five drill rigs that were
to be liquidated. During 1997 and 1998, the Company sold these five drill rigs
and tooling. As equipment is sold the proceeds have been used enhance working
capital. The Company does not consider this equipment to be materially
important to its operation since suitable equipment is available. See Item 6.
"Management's Discussion & Analysis" and Item 7. "Financial Statements".
The Company uses approximately five drilling rigs, including two auger rig and
three rotary rigs. The Company also owns one pump pulling or service rig.
Additionally, the Company owns adequate support equipment such as water trucks,
steam cleaners, compressors, trailers and safety equipment. The Company
operates a vehicle service facility, a welding shop, a paint shop and a
machine shop on the New Ellenton property, which enable the Company to modify,
rebuild and maintain its vehicles, drilling rigs and related equipment. From
time to time the Company may sell equipment if it believes the equipment is not
required.
Item 3. Legal Proceedings
During 1995 the Company signed a letter of intent to merge with Jansko, Inc.
Jansko, Inc. was engaged in designing, manufacturing and marketing office
furniture including seating products, desks, tables, and credenzas. Since the
signing of the letter of intent the Company advanced $385,841 to Jansko, Inc. in
conjunction with the proposed merger of the two Companies.
The Company did not merge with Jansko, Inc., and on May 1, 1996 Mr. George J.
Georges, the Company's President and CEO, filed a petition in the Federal
District Court of Fort Lauderdale, Florida to move Jansko, Inc., into Chapter 7
Liquidation of the Bankruptcy Act and it Amendments. On May 23, 1996 an Order
For Relief was entered by the United States Bankruptcy Court, Southern District
of Florida in Fort Lauderdale, Florida. As a result of these events and
uncertainty of any recovery, the Company recorded a loss during the quarter
ended March 31, 1996 on all advances and loans to Jansko, Inc.
A majority shareholder of the Company filed various lawsuits against certain
officers and directors of Jansko, Inc. and related parties on behalf of the
Company and other parties seeking restitution of funds advanced. The Company
and other parties assigned their rights to the majority shareholder and will
share in any awards less legal and other expenses, on a pro rata basis. In
September 1998 the Company was advised that a settlement was reached and that
the Company would receive $115,086. This amount was deposited into the Company's
bank account on October 13, 1998.
On August 7, 1996 the Company and an officer of the Company were named as
defendants in a sexual harassment and defamation suit filed by a former female
employee in the United States District Court for the District of South Carolina.
The suit sought unspecified actual and punitive damages.
In June 1997, the Company agreed to settle this legal action with prejudice for
a total cost of $131,755 which included the settlement plus legal expenses. This
action was taken in order to minimize the exorbitant costs of litigating these
types of claims and to avoid diverting the attentions of the Company's officers
from the operations of the Company. The Company did not admit liability and
maintains that this action was without merit.
Item 4. Submission of Matters to a Vote of Security Holders
None during the quarter ended September 30, 1998.
PART II
Item 5. Market for the Common Equity and Related Stockholder Matters
There has been an established public market for the Company's securities since
February 23, 1989. The Company's securities are traded in the "Over the
Counter" (OTC) market and were listed in the National Association of Securities
Dealers Automated Quotation (NASDAQ) System until August 26, 1992. On August
27, 1992 the Company's securities were delisted from the NASD Small Cap Market
for failure to meet the minimum bid price requirement as forth in Section 1(c)
(4) of Part II of Schedule D of the NASD By-Laws. On August 27, 1992 the
Company's securities were listed in the Over the Counter Bulletin Board. The
securities were listed under the trading symbol EMON but are now listed under
the trading symbol EVMT.
Shares of the Company's Common Stock $.01 par value.
The high and low bid quotations for the Company's securities as reported by the
Over the Counter Bulletin Board are set forth below. The prices set forth below
are not necessarily indicative of the depth of the trading market in each of the
Company's Securities.
<TABLE>
Bid Prices (1)
<S> <C> <C>
Common Stock High Low
First Quarter Ending 12/31/96 $0.125 $0.0625
Second Quarter Ending 3/31/97 $0.125 $0.0625
Third Quarter Ending 6/30/97 $0.125 $0.0625
Fourth Quarter Ending 9/30/97 $0.125 $0.0625
First Quarter Ending 12/31/97 $0.062 $0.02
Second Quarter Ending 3/31/98 $0.06 $0.02
Third Quarter Ending 6/30/98 $0.085 $0.06
Fourth Quarter Ending 9/30/98 $0.085 $0.02
</TABLE>
(1) Such over-the-counter market quotations reflect in-dealer prices, without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions.
As of September 30, 1998 there were approximately 125 shareholders of record of
the Company's common stock. The Company believes that there are in excess of 250
beneficial owners of the common stocks.
The Company has never paid any dividends on its Common Stock and it is not
anticipated that any dividends will be paid in the foreseeable future. The
Board of Directors intends to follow a policy of retaining earnings, if any,
to finance the growth of the Company. The declaration and payment of dividends
in the future will be determined by the Board of Directors in the light of
conditions then existing, including the Company's earnings, financial condition,
capital requirements and other factors.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
During fiscal year 1998, the Company continued the realignment of its operations
which was started in 1993 and re-focused the deployment of all its productive
assets. The Company sold four drilling rigs during 1997 and an air drilling rig
during 1998. Demand for drilling services increased during 1998 and an
additional auger drill rig was purchased. These asset sales and the purchase of
one drilling rig resulted in a gain on sale of assets of $152,423 and an
increase of positive cash flow of $205,950 during the two year period. See
Item 1. "Business-Introduction", Item 2 "Properties", and Item 7. "Financial
Statements".
Though no assurances can be made, the Company anticipates that this re-focusing
and realignment of equipment and energies will not reduce the productive
capacity of the Company but will reduce future capital requirements and improve
the utilization of drilling equipment and related assets. Management is
committed to monitoring the operating results and to make decisions based upon
those monitored results to maximize the return on investment of the assets
deployed by its operations.
Comparison of Fiscal Years 1998 and 1997
Contract revenue increased approximately $697,000 or 354% in 1998 as compared to
1997. The increase in the revenue was the result of an increase in the
requirement of drilling services at the Savannah River Site and increased
marketing to independent engineering consultants.
Direct contract costs increased $315,850 and 1.6% of revenues in1998 as compared
to 1997. Of this, $300,000 represents an increase in volume and $15,850
represents an increase in other costs.
Indirect contract costs were relatively flat and decreased 42.4% as a percent of
revenues in 1998 as compared to 1997. The percentage decrease was a result of an
overall increase in revenues during the period.
Selling, general and administrative expenses decreased $2,729 or 1.2% and
decreased 61.7% as a percent of revenue in 1998 as compared to 1997. The
percentage decrease is a result of fixed administrative expenses being compared
to increased revenues in 1998.
Depreciation expense decreased $30,337 because of the sale of drilling equipment
and drill rigs in 1997 and as a direct result of the age of certain equipment.
See Item 7. "Financial Statements".
Property, plant, and equipment with a cost basis of $583,707 and a net book
value of $105,827 was sold with cash proceeds of $247,600 being realized during
1997. During 1998 a drill rig was sold with a cost basis of $62,352 resulting in
a gain of $11,550. The amounts of the gains are recorded as a gain on the sale
of machinery and equipment. Miscellaneous equipment and supplies were sold
during 1998 and 1997 and a partial recovery of $15,000 on a previously
uncollectible note was recorded during 1997. These items were both recorded as
other income during 1998 and 1997.
Interest income is a result of the investment of cash in short term treasury
instruments.
The income tax benefit (expense) is a result of the statutory rates of federal
income taxes and alternative minimum tax. The Company has taken a very
conservative approach and has not recorded any deferred tax benefits associated
with the net operating loss carry forwards. There currently are net operating
carry overs for federal income tax purposes of approximately $1,524,000 and
$1,524,000 for state income tax purposes . See Item 7. "Financial Statements".
Management has recognized that the Company can not solely concentrate on
environmental drilling work and seeks to increase its marketing effort to
increase construction drilling and to solicit drilling of production or supply
wells. Management intends to continue these efforts and to be selective in
market areas and types of work contracted. Management continues to search for
companies that fit into related business segments, that can contribute to the
growth of the Company, benefit from the Company's expertise and provide
diversification in general and a more stable revenue flow, though no assurances
can be had that such acquisitions or ventures will be undertaken. The Company
is also seeking to diversify by evaluating other sources of income including,
investment opportunities and joint ventures.
Although inflation has slowed in recent years, it is still a factor in bidding
for long term contracts and the Company continues to seek ways to cope with its
impact. Since most of the Company's contracts are short term, the Company is
able to pass on any increased costs to the extent permitted by competition.
For the longer term and multi-year contracts which normally do not allow price
adjustments, the Company makes its best estimate of a competitive inflation
factor and absorbs any difference in cost.
Liquidity and Capital Resources
During 1997, the Company generated its working capital and capital expenditure
requirements through sales of excess equipment. In 1998, working capital and
capital expenditure requirements were generated from profitable operating
results. The Company's capital expenditures are generally needed for the
replacement of equipment and the Company believes that its liquidity is
sufficient to handle such replacement. At September 30, 1998, the Company had
working capital of $320,567 and a current ratio of 3.6 to 1. At September 30,
1998, the total indebtedness aggregated $123,252 and shareholders' equity was
$691,088. At September 30, 1998 the debt to equity ratio was .18 to 1.
During 1995 the Company signed a letter of intent to merge with Jansko, Inc.
Jansko, Inc. was engaged in designing, manufacturing and marketing office
furniture including seating products, desks, tables, and credenzas. Since the
signing of the letter of intent the Company advanced $385,841 to Jansko, Inc. in
conjunction with the proposed merger of the two Companies.
The Company did not merge with Jansko, Inc., and on May 1, 1996 Mr. George J.
Georges, the Company's President and CEO, filed a petition in the Federal
District Court of Fort Lauderdale, Florida to move Jansko, Inc., into Chapter 7
Liquidation of the Bankruptcy Act and it Amendments. On May 23, 1996 an Order
For Relief was entered by the United State Bankruptcy Court, Southern District
of Florida in Fort Lauderdale, Florida. As a result of these events and
uncertainty of any recovery, the Company recorded a loss during the quarter
ended March 31, 1996 on all advances and loans to Jansko, Inc.
A majority shareholder of the Company filed various lawsuits against certain
officers and directors of Jansko, Inc. and related parties on behalf of the
Company and other parties seeking restitution of funds advanced. In September
1998 the Company was advised that a settlement was reached and that the Company
would receive $115,086. This amount was deposited into the Company's bank
account on October 13, 1998. See Part 1, Item 3 "Legal Proceedings" and Part II,
Item 7 "Financial Statements".
The Company also has ongoing programs to generate greater revenue, reduce
operating costs and to increase accounts receivable turnover to consistently
generate positive cash flow. Although no assurances can be given, the Company
believes that these actions will result in adequate liquidity for the next
fiscal year.
Capital expenditures were not incurred in 1997, however, a drill rig was
acquired during 1998. At present, the Company has adequate levels of property
and equipment to operate its business and is continuing to evaluate equipment
requirements. See Item 7. "Financial Statements".
Item 7. Financial Statements
INDEX
Page
Report of Margolies, Fink and Wichrowski, Independent Public Accountants. .13
Report of Sweeney, Gates & Co., Independent Public Accountants. . . . . . .14
Balance Sheet as of September 30, 1998. . . . . . . . . . . . . . . . . . .15
Statement of Operations for Years Ended September 30, 1998 and 1997 . . . .16
Statement of Changes in Stockholders' Equity for Years Ended September 30,
1998 and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Statement of Cash Flows for Years Ended September 30, 1998 and 1997 . . . .18
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . .19
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable or have been omitted.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Environmental Monitoring &
Testing Corporation
New Ellenton, South Carolina
We have audited the accompanying balance sheet of Environmental Monitoring &
Testing Corporation as of September 30, 1998, and the related statements of
operations, stockholders' equity and cash flow for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to report on these financial statements based on the results
of our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Environmental Monitoring &
Testing Corporation as of September 30, 1998 and its results of operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Margolies, Fink and Wichrowski
Pompano Beach, Florida
November 4, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors
Environmental Monitoring &
Testing Corporation
New Ellenton, South Carolina
We have audited the accompanying statement of operations, changes in
stockholders' equity, and cash flow for the year ended September 30, 1997 of
Environmental Monitoring & Testing Corporation. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessingthe accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the September 30, 1997 financial statements referred to above
present fairly, in all material respects, the results of the operations and the
cash flows for the year ended September 30, 1997 of Environmental Monitoring &
Testing Corporation, in conformity with generally accepted accounting
principles.
/s/ Sweeney, Gates, & Co.
Fort Lauderdale, Florida
October 17, 1997
ENVIRONMENTAL MONITORING & TESTING CORPORATION
BALANCE SHEET
SEPTEMBER 30, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 68,819
Accounts receivable-Trade 240,212
Accounts receivable-Settlement 115,086
Inventories 14,000
Other current assets 5,702
__________
Total current assets 443,819
Property, plant and equipment, net 370,521
__________
814,340
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 80,929
Accrued expenses 42,323
__________
Total current liabilities 123,252
Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized
and none issued ---
Common stock, $.01 par value,
30,000,000 shares authorized
and 6,144,000 shares issued 61,440
Capital-in-excess of par 1,972,883
Accumulated deficit (1,146,308)
__________
888,015
Less: Cost of treasury stock, 2,168,617
shares held at September 30, 1998 (196,927)
__________
Total stockholders' equity 691,088
__________
$ 814,340
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ENVIRONMENTAL MONITORING & TESTING CORPORATION
STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
____ ____
Contract revenue $ 970,761 $ 274,092
____________ ____________
Contract costs and expenses:
Direct contract cost 434,067 118,217
Indirect contract cost 161,533 161,692
Selling, general and administrative expenses 232,530 235,259
Depreciation 33,824 64,161
(Gain) on sale of machinery and equipment (11,550) (140,873)
____________ ____________
Total contract costs and expenses 850,404 438,456
____________ ____________
Loss from operations 120,357 (164,364)
____________ ____________
Other income (expenses):
Interest income 3,670 6,571
Interest expense (500) -
Settlement of litigation 115,086 (131,755)
Other, net 2,300 17,747
____________ ____________
Total other income (expenses) 120,556 (107,437)
____________ ____________
Net income (loss) $ 240,913 $ (271,801)
============ ============
Net income (loss) per share information:(Note 1)
Basic:
Net income (loss) per share $ .06 $ (.07)
============ ============
Weighted average number of common shares 3,975,383 3,828,260
============ ============
Diluted:
Net icome (loss) per share $ .06 $ (.07)
============ ============
Weighted average number of common shares 3,975,383 3,828,260
============ ============
The accompanying notes are an integral part of these financial
statements.
ENVIRONMENTAL MONITORING & TESTING CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
Capital
Common Treasury in excess Retained
Shares Amount Shares Amount of par (Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1996 6,144,000 $ 61,440 (2,318,617) $ (196,927) $ 1,963,508 $ (1,115,420) $ 712,601
Issuance of common
stock to employees 150,000 9,375 9,375
Net (loss) - - - - - (271,801) (271,801)
_________ ________ _________ __________ __________ ___________ _________
Balance,
September 30, 1997 6,144,000 $ 61,440 (2,168,617) $ (196,927) $ 1,972,883 $ (1,387,221) $ 450,175
Net income - - - - - 240,913 240,913
_________ ________ _________ ___________ ___________ ____________ _________
Balance,
September 30, 1998 6,144,000 $ 61,440 (2,168,617) $ (196,927) $ 1,972,883 $ (1,146,308) $ 691,088
========= ======== ========= =========== =========== ============ =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ENVIRONMENTAL MONITORING & TESTING CORPORATION
STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
1998 1997
____ ____
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 240,913 $ (271,801)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 33,824 64,161
(Gain) on sale of machinery and equipment (11,550) (140,873)
Issuance of common stock for services --- 9,375
Changes in certain assets and liabilities:
Inventories (11,500) 1,500
Accounts receivable (266,291) 98,142
Other current assets (3,002) 21,855
Accounts payable 58,890 (11,428)
Other current liabilities 25,529 (14,670)
___________ ___________
Net cash used in operating activities 66,813 (243,739)
___________ ___________
Cash flows from investing activities:
Sale of machinery and equipment 18,800 246,700
Purchase of machinery and equipment (59,550) -
___________ ___________
Net cash used in investing activities (40,750) 246,700
___________ ___________
Cash flows from financing activities:
Proceeds from borrowing 55,000 -
Principal payments for borrowings (55,000) -
___________ ___________
Net cash provided (used in) financing activities - -
___________ ___________
Net increase in cash and cash equivalents 26,063 2,961
Cash and cash equivalents, beginning of period 42,756 39,795
___________ ___________
Cash and cash equivalents, end of period $ 68,819 $ 42,756
=========== ===========
Supplemental disclosure:
Issuance of common stock for services $ - $ 9,375
Sale of assets through accounts receivable 1,500 -
Cash paid for interest 500 -
___________ ___________
Total supplemental disclosure $ 2,000 $ 9,375
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ENVIRONMENTAL MONITORING & TESTING CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Environmental Monitoring & Testing Corporation (the "Company") is a Delaware
corporation, incorporated on May 10, 1988. The Company is engaged in the
business of drilling wells, primarily for the purpose of environmental
monitoring and testing, principally in South Carolina and Georgia.
Cash equivalents
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Accounts receivable
Accounts receivable are reported at their net realizable value. An allowance for
doubtful accounts is recognized when the Company does not expect to collect the
full amount of its accounts receivable. The Company considers accounts
receivable to be fully collectible at September 30, 1998.
Inventories
Inventories are recorded at the lower of cost (measured on a first-in, first-out
basis) or market. Inventories consist solely of supplies, such as pipe, sand,
cement, bentonite, pumps, etc., which are used in the construction of various
types of wells.
Property, plant and equipment
Property, plant and equipment are recorded at cost, less accumulated
depreciation. For financial reporting purposes, depreciation is computed on the
straight-line method over the useful lives of the assets. Accelerated methods
of depreciation are used for income tax purposes. Expenditures for renewals and
betterments, which increase the estimated useful life or capacity of assets, are
capitalized. Expenditures for repairs and maintenance are charged to expense as
incurred.
Accounting estimates
Management of the Company occasionally uses accounting estimates in determining
certain revenues and expenses. Estimates are based on subjective as well as
objective factors and, as a result, judgment is required to estimate certain
amounts at the date of the financial statements.
Recoverability of long-lived assets
The Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." The Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the asset may not be
recoverable. The Company is not aware of any events or circumstances which
indicate the existence of an impairment which would be material to the Company's
financial statements.
Contract revenue and costs
The Company recognizes revenues on contracts based upon direct labor hours
worked and services completed and accepted by the customer. Contract costs and
expenses are recorded as incurred.
Income taxes
Deferred income taxes in the accompanying financial statements reflect temporary
differences in reporting results of operations for income tax and financial
accounting purposes. The principal timing differences in recognition of income
taxes result from using the cash basis of accounting for income tax purposes and
the accrual basis for financial reporting purposes, and the difference in book
and tax basis of property, plant and equipment.
Net income (loss) per share
In 1998, the Company adopted SFAS No. 128, ("Earnings Per Share"), which
requires the reporting of both basic and diluted earnings per share. Basic net
loss per share is determined by dividing loss available to common shareholders
by the weighted average number of common shares outstanding for the period.
Diluted loss per share reflects the potential dilution that could occur if
options or other contracts to issue common stock were exercised or converted
into common stock, as long as the effect of their inclusion is not anti-
dilutive.
2. LOSS ON ADVANCES TO JANSKO, INC.
During 1995 the Company signed a letter of intent to merge with Jansko, Inc.
Jansko, Inc. was engaged in designing, manufacturing and marketing office
furniture including seating products, desks, tables, and credenzas. Since the
signing of the letter of intent the Company advanced $385,841 to Jansko, Inc. in
conjunction with the proposed merger of the two Companies.
The Company did not merge with Jansko, Inc., and on May 1, 1996 Mr. George J.
Georges, the Company's President and CEO, filed a petition in the Federal
District Court of Fort Lauderdale, Florida to move Jansko, Inc., into Chapter 7
Liquidation of the Bankruptcy Act and its Amendments. On May 23, 1996 an Order
For Relief was entered by the United State Bankruptcy Court, Southern District
of Florida in Fort Lauderdale, Florida. As a result of these events and
uncertainty of any recovery, the Company recorded a loss during the quarter
ended March 31, 1996 on all advances and loans to Jansko, Inc.
A majority shareholder of the Company filed various lawsuits against certain
officers and directors of Jansko, Inc. and related parties on behalf of the
Company and other parties seeking restitution of funds advanced. In September
1998 the Company was advised that a settlement was reached and that the
Company would receive $115,086. This amount was deposited into the Company's
bank account on October 13, 1998.
3. PROPERTY, PLANT AND EQUIPMENT
At September 30, 1998, property, plant and equipment consisted of the following:
<TABLE>
Useful Lives Accumulated Net Book
(Years) Cost Depreciation Value
<S> <C> <C> <C> <C>
Land $109,617 $ - $ 109,617
Buildings and improvements 30 304,958 101,524 203,434
Drilling equipment and
vehicles 2 - 7 404,505 347,035 57,470
Furniture and fixtures 3 - 5 9,459 9,459 -
_________ ____________ _________
Total property, plant, and
equipment $ 828,539 $ 458,018 $ 370,521
========= ============ =========
4. LEASES
The Company rents equipment on an as needed basis for terms of one day to
several months. The Company also leased one vehicle under an operating lease
arrangement which expired in 1997. Rent expense for the years ended September
30, 1998 and 1997, was approximately $3,190 and $3,900 respectively.
5. STOCK OPTION PLANS
In November, 1992 the Company's Board of Directors adopted the 1992 Stock
Option Plan (the "Plan") which was approved by the Shareholders at the 1992
Annual Meeting on January 8, 1993.
The purpose of the Plan is to encourage and enable employees, directors and
other persons upon whose judgment, initiative and efforts the Company largely
depends to acquire a proprietary interest in the Company. Under the Plan, the
Board of Directors, or a Stock Option Committee appointed by the Board of
Directors, may grant stock purchase options ("Options") relating to a maximum
of 1,000,000 shares of Common Stock (subject to adjustment due to certain
recapitalizations, reorganizations or other corporate events). The Board of
Directors or the Company's Stock Option Committee shall have discretion to
determine which of this amount may be granted as incentive stock options
("ISO's") and non-statutory options. If any Option expires, terminates or is
canceled without having been exercised, the shares subject to that option will
again be available for issuance under the Plan.
As of September 30, 1998, there were no options issued under the plan.
7. INCOME TAXES
The Company accounts for income taxes according to Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
The net deferred tax asset (liability) in the accompanying balance sheet as of
September 30, 1998 includes deferred tax assets and liabilities attributable to
the following items:
</TABLE>
<TABLE>
<S> <C>
Deferred tax assets (liability):
Accrual to cash basis of accounting $ (62,330)
Depreciation (2,119)
Investment credit carry forwards 6,933
Net operating loss carry forwards 480,265
__________
Net deferred tax asset (liability) 422,749
Valuation allowance for deferred tax assets (422,749)
__________
Net deferred asset tax (liability) $ 0
==========
As of September 30, 1998, the Company had available a cumulative federal net
operating loss carry forward of approximately $1,524,000 which expires as
follows: $158,000 in 2006, $408,000 in 2007, $394,000 in 2008, $564,000 in 2011,
and a capital loss carryover of approximately $24,000 which expires in 2000.
The use of loss carry forwards may result in the payment of alternative
minimum tax. In addition, the Company has available an investment tax credit
carry forward of $6,933 which expires in 2002.
7. STOCKHOLDERS' EQUITY
In September 1997 stock awards for 150,000 shares of restricted common stock of
the Company were authorized by the Board ofDirectors and awarded to an officer
and director of the Company. The restricted common shares issued resulted in a
$9,375 charge against fiscal 1997 income.
8. OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT
The Company's financial instruments subject to credit risk are primarily trade
accounts receivable. Generally, the Company does not require collateral or
other security to support customer receivables. The Company derived
approximately 82 percent and 85 percent of its revenue in the years ended
September 30, 1998 and 1997, respectively, from a single customer, the
Westinghouse Savannah River Company, a material processing facility owned by
the United States Department of Energy. A disruption of this relationship or a
material reduction in the volume of business with the Westinghouse Savannah
River Company could have a material adverse affect on the Company.
9. COMMITMENTS AND CONTINGENCIES
On August 7, 1996 the Company and an officer of the Company were named as
defendants in a sexual harassment and defamation suit filed by a former female
employee in the United States District Court for the District of South Carolina.
In June 1997, the Company agreed to settle this legal action with prejudice for
a total cost of $131,755 which included the settlement plus legal expenses. This
action was taken in order to minimize the exorbitant costs of litigating these
types of claims and to avoid diverting the attentions of the Company's officers
from the operations of the Company. The Company did not admit liability and
maintains that this action was without merit.
Item 8. Changes in and Disagreements with Accountant on Accounting and
Financial Disclosure
The information requested by this item is hereby incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to Regulation 14C
no later than 120 days after the Company's fiscal year end.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance With Section 16(a) of the Exchange Act
Directors, Executive Officers, Promoters and Control Persons
The information requested by this item is hereby incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to Regulation 14C
no later than 120 days after the Company's fiscal year end.
Compliance With Section 16(a) of the Exchange Act
To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations from reporting persons that
no reports were required for those persons, during the fiscal year ended
September 30, 1998.
Item 10. Executive Compensation
The information requested by this item is hereby incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to Regulation 14C
no later than 120 days after the Company's fiscal year end.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information requested by this item is hereby incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to Regulation 14C
no later than 120 days after the Company's fiscal year end.
Item 12. Certain Relationships and Related Transactions
Compensation and Employee Agreements
The information requested by this item is hereby incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to Regulation 14C
no later than 120 days after the Company's fiscal year end.
Related Party Transactions
The information requested by this item is hereby incorporated by reference from
the Company's definitive proxy statement and supplement thereto to be filed
pursuant to Regulation 14C no later than 120 days after the Company's fiscal
year end.
Options
The information requested by this item is hereby incorporated by reference from
the Company's definitive proxy statement to be filed pursuant to Regulation 14C
no later than 120 days after the Company's fiscal year end.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits Incorporated by Reference
The following exhibits which are on file with the Securities and Exchange
Commission are incorporated herein by reference as exhibits hereto.
Exhibit No. Description
3.I Articles of Incorporation of the Company**
3.ii By-laws of the Company**
4 Specimen Share Certificate*
22 Published report regarding matters submitted to
vote - Definitive Proxy
*Incorporated by reference to registrant's Amendment No. 2 to Registration
Statement on Form S-18 as filed on January 25, 1989.
**Incorporated by reference to the registrant's Registration Statement on
Form S-18 as filed November 16, 1989.
(b) Reports on Form 8-K in the Fourth quarter of fiscal year 1998: None
Note: Copies of Exhibits to Form 10-KSB will be furnished upon the written
request of any shareholder of the Company at a charge of $.25 per page plus
postage or shipping.
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by undersigned,
there unto duly authorized.
Environmental Monitoring & Testing Corporation
Date: December 6, 1998 By /s/ George J. Georges
George J. Georges, Chairman,
President and CEO
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.
Signature Capacity Date
/s/ George J. Georges Chairman, President, December 6, 1998
George J. Georges Chief Executive Officer and
Director
/s/ Michael Camino Director December 6, 1998
Michael Camino
Director De
Director December 6, 1998
Rebecca DelMedico
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 68,819
<SECURITIES> 0
<RECEIVABLES> 355,298
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 443,819
<PP&E> 828,539
<DEPRECIATION> 458,018
<TOTAL-ASSETS> 814,340
<CURRENT-LIABILITIES> 123,253
<BONDS> 0
0
0
<COMMON> 1,837,395
<OTHER-SE> (1,146,308)
<TOTAL-LIABILITY-AND-EQUITY> 814,340
<SALES> 970,761
<TOTAL-REVENUES> 970,761
<CGS> 850,404
<TOTAL-COSTS> 850,404
<OTHER-EXPENSES> (121,056)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 500
<INCOME-PRETAX> 240,913
<INCOME-TAX> 0
<INCOME-CONTINUING> 240,913
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 240,913
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
